Capital & Operations
The math that decides every equipment purchase.
Two numbers tell you whether the next big buy pays you back or sits in the yard.
The two numbers
Run these before you sign anything.
- 01
Payback period
Total cost ÷ monthly net cash contribution. How many months until the machine has paid for itself.
- 02
Utilization rate
Hours actually used ÷ hours available. The single biggest predictor of whether payback math holds up in real life.
Worked example
A $68,000 mini skid loader for a tree service.
Adds a full crew member of productivity per job (saves $35/hr labor × 6 hrs/job = $210/job). Lets you bid stump grinding ($600 average ticket, 4 new jobs/month = $2,400/mo new revenue at 65% GP = $1,560/mo new gross profit).
Carry cost: $68k financed at 8% over 5 years = $1,378/mo payment. Fuel and maintenance $200/mo. Insurance $80/mo. Total carry: $1,658/mo.
The result
Net $1,582/month. Payback in 43 months.
$1,560 new GP plus $210 × 8 jobs labor savings = $3,240 contribution. Less $1,658 carry = $1,582 net per month. Payback: $68,000 ÷ $1,582 = 43 months.
That’s borderline. If utilization drops below 60%, payback stretches past 6 years and the loader becomes a yard ornament. Run this calc for every purchase over $5,000. Most owners run it for none.
The bottom line
Payback math protects you from expensive paperweights.
Write the numbers down before the salesperson does it for you.